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RO1 - my own > Ch 2 > Flashcards

Ch 2 Flashcards

1
Q

New state pension

A 
£168.60
Must have 35 years NICs
Not been contracted out of state pension
Taxable
Retired on or after 6 April 2016
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2
Q

Basic State Pension

A

£129.20
Prior to 6 April 2016
Taxable

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3
Q

State Graduated Pension

A

1959 - 1975

Depends on earnings

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4
Q

State Earnings Related Pension (SERPS)

A

1978
Takes 20 years to build
Payable to those retiring from 1998

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5
Q

State Second Pension (S2P)

A

2002

Focused on lower paid earners (LET)

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6
Q

Compulsory purchase annuity (CPA)

A

Taxed as earned income

Paid at 20%, 40%, 45%

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7
Q

Purchased life annuity (PLA)

A

Purchased from tax free capital, lump sum

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8
Q

State Pension Age

A

66 from October 2020§

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9
Q

Benefits for families and children

A

Child benefit: universal, non taxable, £20.70 p/w first child, £13.70 thereafter. Taxable IF partner has income over £50k
Child taxt credit: means tested, non taxable
Maternity allowance: contributions based, non-taxable, £148.68 p/w
Statutory maternity, paternity, adoption and shared parental: contributions based, taxable, £148.68 p/w

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10
Q

Unemployment

A

Income support: means-tested, non taxable, £57.90 p/w lowest (single), £114.85 p/w highest (couple)
Jobseeker’s allowance: contributions based for 6 months, means tested thereafter, taxable
Statutory redundancy payments: eligibility criteria, non taxable
Working tax credit: means tested, non taxable, dependent on circumstances/income

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11
Q

Capital and interest

A

Monthly repayments to the lender include sum to cover a contribution towards capital, plus sum for interest

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12
Q

Interest - only

A

Where only interest accruing n the loan is paid and outstanding capital remains the same. Objective is to pay another source at end of term i.e. via an endowment policy, selling property, ISA or tax free cash from pension.
Low incomly payment but high overall.

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13
Q

Mortgage market review (MMR)

A

Significantly reduced avaiability of interest only after it came in to effect April 2014

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14
Q

Capped

A

Lender guarantees interest rate will not rise above a given level for certain period of the loan

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15
Q

Cap and collar

A

Lender guarantees interest rate on the loan will not rise above a given level (the cap) or minimum rate which it will not fall elow (collar)

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16
Q

Discount

A

Interest rate charged for initial period is reduced by a set percentage below the standard rate

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17
Q

Euro

A

Interest and capital of the loan is designated in euros or another currency, usually to take advantage of lower interest rates. Can result in gains or losses as exchange rate moves

18
Q

Equity linked, also called Shared Appreciated Mortgages (SAMs)

A

Lender takes a stake in the equity of the proeprty that has been purchased. Amount loaned, on which interest is charged, is less than the amount advanced for purchase. On the sale of the property, proportion of lender’s equity stake is repaid to them. It is possible for borrower to slowly accrue lender’s stake over time

19
Q

Fixed interest

A

Interest rate charged remains fixed for a given period. Borrower takes a risk that interest rates generally might fall below for the rate charged, but in exchange have a known liability for mortage interest over fixed period. These schemes often have redemption penalties

20
Q

Flexible

A

Monthly payments can be varied if required and lump-sum capital repayments can be made at any time. As capital is repaid, this created a reserve from which the borrower can withdraw cash upp to the initial mortage amount.

21
Q

Offset

A

Where a mortgage account and bank account are liked. Interest is charged on the net balance of the two accounts, so if money is kept in the back account, the size of the mortgage is effectively reduced. Even the effect of a monthly salary going in can have an effect and reduce overall interest payments

22
Q

Tracker

A

Variable rate mortgage where there is an automatic link built in, so the interest tracks an index, usually the BoE base rate or London Interbank Offered Rate (LIBOR).

23
Q

Equity release

A

Typically available to those over 60.
Allows them to release the equity (cash) tied up in home
Available as either lifetime mortgages or home reversion plans

24
Q

Lifetime mortgages

A

A loan secured on the home, motgage may be:
- A roll up mortgage (intersted is added to the loan - for exmaple, each year): Client gets a lump sum or regular income and is charged a monthly or yearly interst rate that is added to the loan. Original amount plus rolled up is paid when home is sold

  • Fixed repayment: client gets a lump sum but doesn’t have to pay interest. Instead when home is sold, lender is paid a higher amount than borrowed. Amount agreed in advance
  • Interest only: pay monthly, can be fixed or variable.
  • Home income plan: Money borrowed is used to buy a regular fixed income for life (an annuity). This income is used to pay the interest on the mortgage. Amount borrowed repaid when home is sold
25
Q

No negative equity guarantee

A

With most lifetime mortgages, this guarantees the client or beneficiaries will never have to pay back more than the value of the home, even if debt is larger

26
Q

Home reversion plans

A

Client sells all or part of home in return for a cash lump sum, a regular income, or both
Client is allowed to remain living under lease until they die or move in to a long-term care facility
Client will usually only get between 20% and 60% of market value of their home. Older they are, the higher the percentage will be

27
Q

Home pruchase plans

A

Muslims:

Ijara: monthly payments held by firm and used to buy home at end of agreement
Diminishing musharaka: each payment made towards buying property buys an extra slice of the firm’s share. As share increases, firms share gets smaller and so does the rend paid for the use of the firms share

28
Q

Sale and rent back

A

Mortgage rescue, rent back or sell to let are other terms

29
Q

Buy to let

A

Consumer buy to let is regulated by FCA

Business buy to let is not

30
Q

Term assurance

A

Pays a lump sum (or in the case of a family income benefit, a serious of lump sums) on the death of life assured

31
Q

Level term

A

Offers level sum assured in return for a level premium throughout term of contract

32
Q

Decreasing term assurance

A

Designed to meet neets of individuals with a decreasing liability on death, such as those with loans being gradually repaid
Those on capital and interest use a variation of this, called mortgage protection insurance.
Premium remains the same throughout and will generally be lower than level term

33
Q

Family income benefit policies

A

Special form of decreasing term where families recieve series of regular annual or monthly payments on the death of life assured, instead of one lump sum payment

34
Q

Increaseable term assurance

A

Provides for the sum assured to be increased regularly over term of contract (e.g. 5% per annum), without any evidence of life assured being in good health. Higherr premiums, but maintains value against inflation

35
Q

Convertible term assurance

A

Policyholder can change to endowment or whole of life policy up to the same sum assured at any time.

36
Q

Renewable term assurance

A

Allows client to take for say 3-5 years and client has guaranteed right to effect similar policy for similar term without having to give evidence of good health
Short initial term means premiums are low but can go up with each policy

37
Q

Endowment

A

Pay lump sum on dealth and are primary savings vehicles

Not great for significant level of life cover

38
Q

Whole of life

A

Geared towards providing substantial level of cover with an element of investment
Cover for lifetime of assured

39
Q

Non profit whole of life

A

Guarantees to pay fixed amount on the death of life insured

40
Q

With profit whole of life

A

Increases annually by addition of bonuses

41
Q

Flexible assurance

A

Policyholder chooses between mimumum and maximum cover

Can be changed within these upper and lower limits

42
Q

Disability and sickness benefits

A

Attendance allowance: not means tested, non taxable
Carer;s allowance: means testd, taxable
Disability living allowance: eligibility criteria, non taxable
Employment and support allowance: contributions-based (not means tested) is taxable. Income related (means tested) is non taxable
Statutory six pay: Contributions based, taxable

RO1 - my own (3 decks)

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